General Comments:
Cash cattle trade has once again trickled into the market each of the last two days. This is expected to continue the trend of limited activity each day, with overall trade this week coming in "dribbles and drabs." But the fact that prices softened Tuesday from Monday's price levels by $3 to $6 per cwt is creating some concerns that further weakness may develop as the week continues. The wide price spread between cash cattle prices and futures has become commonplace over the last couple of months, but as slaughter numbers return to a more normal level, these basis levels are likely to continue to erode. Given the current market conditions, it is unlikely that futures trade will find adequate support to narrow the gap on its own with the expectation that both sides will steadily move to more even ground. It is likely that cash markets are going to take the brunt of the pressure over the next few weeks. Strong gains in June futures on Tuesday helped to spark some underlying firmness, although the nearby June contract remains lightly traded with most of the open interest in August futures. The ability to sustain firm gains in August and October futures Wednesday morning is likely to help spark some underlying support through the complex as traders expect that the industry will continue to work through the backlog of cattle that developed over the last couple of months. With daily slaughter rates nearing year-ago levels, and approaching 120,000 per day, less and less focus will be put on supply disruption as the attention moves back to end user demand. Wednesday slaughter is expected at 118,000 head.
Nearby lean hog futures remain undermined by erosion in cash hog and pork cutout values as traders try to find renewed support. June futures remain lightly traded with the market moving into the July and August contracts. Currently the combination of June through August contracts make up "nearby contract" direction, with the remainder of contracts focused on deferred market activity. This is the main reason between the price break Tuesday as summer contracts posted firm losses, while the rest of the market moved in the opposite direction. The rest of the summer, the industry and market will continue to work through the backlog of hogs that were pushed back due to limited slaughter numbers the last couple of months. The fact that average hog weights are not increasing over the last month remains perplexing as traders continue to look at the weekly weights, which will be released Wednesday morning. Continued pressure on pork cutout values and cash market prices are likely to keep nearby contracts from showing significant support over the near future, although there is hope of steady buyer support in the upcoming weeks as traders look toward longer-term demand growth through the rest of the year. Cash hog bids are expected $1 lower to 50 cents higher per cwt higher with most bids steady to 50 cents lower. Slaughter Wednesday is expected at 448,000 head. Saturday runs are expected at 228,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Strong gains in nearby live cattle trade Tuesday is creating the hope and expectation that renewed buyer support may move back into the market in the coming days. This has pushed nearby futures well above $95 per cwt with the next major price threshold of $100 per cwt.
| 1) |
Cash cattle prices are starting to shift lower although active trade has not developed yet at this point. Light trade on Monday and Tuesday is on the lower end of last week's trade, and well below the average price levels. Further cash market erosion could limit active support in all markets over the near future.
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| 2) |
Active gains continue to develop in feeder cattle trade with the focus on the need to increase placement levels over the next couple of months in order to keep supply levels adequate through the end of the year. This could continue to break the normal relationship between nearby live cattle and nearby feeder cattle markets as feeders aggressively source additional cattle to fill lots.
| 2) |
Boxed beef values continue to shift lower. Although prices have moved away from sharp double-digit losses, the lack of price stability is leaving the complex generally weak.
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| 3) |
Active gains are seen in daily slaughter rates with plants able to increase levels nearly 30,000 head per day compared to last week levels. The industry still remains well below "normal" processing speeds, but the ability to maintain daily schedules near 450,000 head will go a long way in stabilizing the meat supplies.
| 3) |
Active pressure in nearby lean hog futures Thursday continues to put additional focus on the inability for market strength to develop in a market where supplies remain abundant. This could limit short-term support in all summer contracts based on the number of hogs available to packers.
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| 4) |
The ability to limit average weights through the month of June continues to be a significant part of helping to regain a current market structure. Average weekly weights will be released Wednesday morning, but are expected to follow the trend of lower weekly levels seen over the past few weeks.
| 4) |
With the national average cash hog price hovering near $30 per cwt, the continued focus on burdensome supplies may continue to cause limited market erosion in the complex over the near future.
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| #completeherdhealth |
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